Briefly: Portfolio managers bullish on Canadian equities

(April 7, 2008) Increasing oil prices have made portfolio managers more bullish on the Canadian equity market, according to the latest Russell Investment Manager Outlook for 2008’s first quarter.

Russell’s survey of 42 investment management firms and 59 investment managers from Canada found 43% of Canadian investment managers are bullish towards domestic equities — a 15% increase in optimism since the fourth quarter of 2007.

Russell attributes much of this optimism to the recent rise in commodity prices, particularly oil. 55.8% of managers are bullish towards the energy sector — a jump of 13% over last quarter.

Despite the increased optimism about the Canadian market, Russell notes that sentiment among managers remains largely polarized. Forty-Three per cent of managers surveyed were also bearish on the outlook for Canadian equities.

“The even number of bulls and bears on Canadian equities may reflect a general disparity of opinions. Is the worst of the sub-prime crisis over? Is recession coming to Canada? How will central banks balance demands for more stimulus while containing inflation? These are the questions currently dividing market watchers,” says Timothy Hicks, Russell Investments Canada’s chief investment officer.

In certain asset classes, though, there is considerably more consensus. For example, bullishness towards small cap stocks increased slightly from 19% to 24%, while bearishness remained dominant at 56% of survey respondents. Russell suggests small cap pessimism may be increasing because many smaller Canadian companies are in the currency-sensitive manufacturing sector. Indeed, 35% of investment managers are now bullish towards the Canadian dollar compared to 23% in the previous quarter.

The pendulum swung significantly to the bulls, though, when it came to the gold-heavy materials sector. Bullish sentiment soared from 38% to 62%, and bears dropped from 45% to 33%. A number of factors appear to be driving this optimism, including fast-rising gold prices, continuing deterioration of the U.S. dollar, and a long-held belief that gold is a hedge against inflation.

In the financials sector, bulls increased from 30% to 42% and bears rose from 35% to 40%. Russell notes that it certainly appears opinion is becoming more entrenched on both sides of the debate over whether Canadian bank stocks have finally reached bottom, or whether there might be further downside risk around the corner.

(04/07/08)

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.